This cash shortfall is recorded as a debit to the cash over and short account (which is an expense) and a credit to the petty cash or cash account (which is an asset reduction). In this case, we can make the journal entry to record the cash overage by debiting the cash account and crediting the cash over and short account and the sales revenue account. For example, is cash short and over an expense on December 22, after reconciling the cash on hand with the cash sales, we find that there is a cash shortage of $5. The total amount of cash sales in the sales receipts is $2,790, however, the actual cash we have is only $2,785 (excluding the $100 cash prepared for small notes changes at the beginning of the day). This is probably due to there have been many transactions for our retail business as it is near holiday resulting in errors in our calculation.

Cash shortage in retail business

This can arise from various factors, including human mistakes, theft, or miscalculations. Regular cash reconciliation is vital for businesses to maintain accurate financial statements and uphold financial integrity. Let’s assume Tom rang up a $100 pair of running shoes for $100, but he miscounted the cash received for the shoes. The accounting system will show $100 in sales but $101 of collections. The journal entry to record this sale would debit cash for $101, credit sales for $100, and credit cash over short for one-dollar. Most retailers’ accounting systems have a cash over short account setup because they generally deal with cash sales everyday.

What is the Journal Entry to Record a Cash Overage?

That is why we debit the expenses account in the above journal entry. In this case, we can make the journal entry for cash shortage by debiting the cash account and the cash over and short account and crediting the sales revenue account. Cash shortage usually happens when the actual cash on hand received from sales is less than the total amount in sales receipts for the retail business. For other types of businesses, it usually occurs when the cash on hand, left after petty cash expenses, is less than the total amount in petty cash expenses receipts. For other types of businesses, the cash shortage usually happens when dealing with petty cash.

Where does cash over and short account go?

As mentioned above, the sales staff or cashier can give too much or too little change to the customer. This difference is treated as income or expense and presented in the income statement. When we give too much change to customers, it means that we make change more than it should be. Thus, it is a loss as we give much more change of cash to customers. Alternatively, if there had been too much cash in the petty cash box (a QuickBooks rare condition indeed!), the entry would be reversed, with a debit to cash and a credit to the cash over and short account. The cash over and short account is an excellent tool for tracking down fraud situations, especially when tracked at the sub-account level for specific cash registers, petty cash boxes, and so forth.

Cash overage in retail business

After calculation, even though the total petty cash expenses are only $82 ($45+$25+$12), we need to replenish $85 ($100-$15) as we have only $15 cash on hand left. Likewise, the $3 difference is the cash shortage that we need to recognize as a small loss. In contrast, let’s assume that during the cash count, the actual cash from the cash sales is $495 instead of $510. A firm should note instances of Sales Forecasting cash variances in a single, easily accessible account.

In contrast, if we give too little change of cash to customers that means it is a gain for us. Therefore, the balance of cash short and over is on debit or credit depends on whether it is shortage or overage. In case of shortage, the cash over and short is on debit and vice versa.

• When the company has the cash overage in the petty cash fund, it can make the journal entry by debiting the expenses account and crediting the cash over and short account together with the cash account.
• In the fast-paced world of quick trading and investments, platforms like Pocket Option provide tools to manage and monitor cash effectively.
• These journal entries are crucial for adjusting the cash account to reflect the actual cash position accurately.
• He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.
• On the other hand, if the company has a cash shortage in the petty cash fund, it can make the journal entry with the debit of cash over and short account instead.

A series of cash overs and shorts may be a sign of theft or other problems in the company. The primary use of the cash over and short account is in cash-intensive retail or banking environments, as well as for the handling of petty cash. In these cases, cash variances should be stored in a single, easily-accessible account. This information is then used to track down why cash levels vary from expectations, and to eliminate these situations through the use of better procedures, controls, and employee training. The cash over and short is recorded on debit when there is a shortage.

Also, the expenses in this journal entry are usually the expenses with a small amount such as postage expenses and freight expenses, etc. Cash Over and Short acts as a Revenue account when there is an overage. It’s “other revenue” for you, not a normal source of revenue like your paycheck.